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Nigerian naira falls further

By on November 29, 2014

Nigeria’s naira fell 2.5 percent on Friday, despite central bank intervention, and it briefly touched a record low on concerns OPEC’s decision not to cut oil output would put further pressure on Nigeria’s shaky finances.

The central bank has struggled to keep the naira within its preferred band even after devaluing the currency by 8 percent on Tuesday in a bid to halt a slide in Nigeria’s foreign reserves. Oil sales provide around 95 percent of those reserves.

The bank’s target band after devaluation is 5 percent plus or minus 168 to the dollar, but doubts remain about whether it went far enough given the bleak outlook for oil prices. The naira has consistently tested the lower end of the new band.

Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including the Russian rouble and Angola’s kwanza.

In Nigeria, Saudi Arabia’s decision on Thursday to block calls from poorer OPEC members to cut oil output came as a disappointment to many.

Oil prices have lost a third of their value since June and with OPEC’s decision set to send them lower still, pressure on Nigeria’s foreign currency reserves and the naira is set to increase.

“Many importers are bringing forward their obligations in view of the persistent fall in oil prices,” one dealer said.

Finance Minister Ngozi Okonjo-Iweala admitted on Thursday that a significant portion of the billions of dollars drained from the oil savings account over the past two years was distributed to powerful governors instead of being saved for a “rainy day”.

The country’s fiscal problems are adding to challenges to stability posed by an Islamist insurgency raging in the northeast, seen as the country’s biggest security threat.

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